Tokenizing Venture Capital as the Future of Investing and an Opportunity for Reinvention

April 26, 2019

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In the era of breakthrough technologies and fluctuating markets more investors search for new alternative investment opportunities. An even greater number of them have chosen to look beyond the traditionally safe precious metals or the often profitable but ever so unpredictable stocks.

New opportunities have emerged, including tokenization of venture capital. But why is tokenized venture capital a perfect new asset class to invest in?

VC investing: unprecedented scale, unparalleled opportunities

Venture capital market is an ever-growing phenomenon. In 2018 global VC investment has reached an unprecedented $254 billion according to a KPMG 2018 venture capital report. Together with “dry powder” and investments of PE funds, investing in companies at later funding stages, the total asset value of the venture market is an estimated $1 trillion according to McKinsey Global Private Markets Review for 2018.

Venture capital holds tremendous promise for investors. Roughly 1 in 10 VC deals is generating returns of over 5x to their investors, while so called “moonshots” can return 50-70x invested capital. Unlike many assets the price for which can fluctuate dramatically depending on the overall economic situation, venture capital as an asset can offer a buffer of stability by virtue of having a diversified portfolio. If one startup fails, the whole VC fund won’t go down in flames. Portfolio diversification offers a unique opportunity to mitigate risks and hedge against economic uncertainties.

If venture capital is a solid investment vehicle that can weather any storm, then, by proxy, tokenized venture capital portfolios are a financial instrument grounded in a secure and trustworthy asset.

VNX Exchange is building the world’s first regulated digital asset marketplace to enable $1 trillion of additional liquidity to VC industry. The goal is to provide access to VC as an asset class to a broad pool of investors.

Our platform will tokenize only trusted funds that have undergone the necessary due diligence and checks, another safeguard mechanism to ensure that the instrument is rooted in a tangible real-life asset.

Tokenization of VC portfolios happens on the blockchain, which offers an additional layer of security for investors who value safety of their investments, immutability of all transactional records, custodial support and who just want to be sure their investments won’t evaporate once they become digitized.

An entry ticket to such a marketplace is also within reach to so many. While becoming a limited partner at a VC firm requires writing a multi-million-dollar check, purchasing a tokenized VC portfolio is something that can be made available and accessible to all.

Before you decide if you want to invest in a tokenized VC portfolio, consider the upside: outsized returns, security of investment through diversification, safety and traceability of investments on the blockchain. But even more importantly, tokenized VC is an opportunity for you to set in stone your legacy as an investor into the next innovative technology company – the next Uber, Pinterest, Airbnb or Facebook.

The power of VC

Venture capital is a powerful investment vehicle that allows emerging technologies to grow and develop. It is the best source of funding and expertise for new technologies, especially for early-stage companies.

Crowdfunding, for instance, while seemingly more accessible, may work for small projects or simpler technologies. For much larger and complex projects you need the power of VCs. VCs require professional expertise to assess an investment opportunity, to perform due diligence and test the viability of an idea or a project. This is especially true for niche industries or complex technologies.

“VCs play a vital role in investing into startups. They bring values that may be difficult to assess for mass audiences but they serve as a filter for technologies and business models that have been tried in other parts of the world and failed,” Alexander Tkachenko, CEO, VNX Exchange, said.

VC funds also have a treasure trove of entrepreneurial experience because they know how to manage companies. They can help companies to dramatically expand their vision and product offering.

A diversified portfolio which offers lower risks and increased investor protection and more possibilities to generate good returns is key for VCs. All of these factors combined can turn a venture capital portfolio into a solid asset that can offer substantial returns.

Turning venture capital into an asset class

Venture capital is no doubt an attractive form of private equity that promotes entrepreneurship and innovation, fosters economic growth and offers potentially outsized returns. Leveraging it as an asset class can not only further expand its reach but completely reinvent it.

By tokenizing VC funds’ startup portfolios VNX Exchange solves a key problem inherent to VCs: lack of liquidity. VC firms invest millions of dollars from their dry powder coffers and have to wait years, sometimes decades or longer, for a startup to successfully exit a portfolio through an IPO or an M&A deal. Tokenized VC portfolios can be sold or bought on a secondary market by a big pool of investors. The newly gained liquidity can be used to invest into more startups which helps innovation and enhances economic growth.

VCs have always been an inherently agile investment vehicle but with the emergence of megafunds, such as Softbank’s Vision Fund, Sequoia and Tiger Global, and megadeals, including the $2.8 billion Grab and $12.8 Juul, it has turned to conservatism. This needs to change! The key part of the term “venture capital” is, after all, venture! It allows the bold and the brave to pursue their dreams of becoming entrepreneurs and to turn unusual ideas into life-changing products and services. Venture capital is what birthed Uber, Airbnb, Zoom, Pinterest and Lyft.

The way to venture capital of the future where early-stage startups not only survive but thrive is through tokenization. So why not give the VC industry a much needed makeover? Let’s keep VC investing as an opportunity for those who dream big and reap substantial returns on their investments in the process.

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